Working Paper: NBER ID: w25894
Authors: Mark R. Rosenzweig; Christopher R. Udry
Abstract: The livelihoods of the majority of the world's poor depend on agriculture. They face substantial risk from fluctuations in weather conditions. Better risk, credit and savings markets can improve productivity and welfare in rural areas but entail high administrative costs. We consider a classic public good with benefits that theoretically exceed those of perfect insurance contracts – improving the skill of long-run weather forecasts. We use an equilibrium model of agricultural production and labor migration, and a variety of Indian panel datasets to assess quantitatively the effects of improvements in seasonal forecasts of monsoon weather. We find that in areas where the forecast is accurate (has “skill”) that investment, migration and rural wages respond to forecasts. We calculate that if such skill were pervasive across India, the total value of an accurate forecast for farmers and wage workers is in the tens of billions of rupees.
Keywords: Weather Forecasting; Rural Development; Agricultural Investments; Labor Migration
JEL Codes: O1; Q12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Improvements in seasonal weather forecasts (C53) | Increased farmer investments (Q12) |
| Improvements in seasonal weather forecasts (C53) | Increased labor migration decisions (J61) |
| Pessimistic forecast (G17) | Decreased planting-stage investments (Q12) |
| Pessimistic forecast (G17) | Increased outmigration in planting period (F22) |
| Improvement in forecast skill (C53) | Increased farmer profits (Q12) |
| Higher statutory minimum wages (J38) | Blunted positive effects of favorable forecasts on outmigration (F22) |